Bubble Alert: Stocks Are Trading Based on Accounting Gimmicks And Fraud, Not Growth

April 28, 2017

Time to bust yet another hole in the “stocks are cheap” argument.

As we’ve already noted earlier this week, based on the only valuation metric that can’t be massaged, stocks are more expensive than they were in 2007 and on their way to tying the all-time high established in 1999.

Of course, few people use P/S to value stocks. Most people use Price to Earnings or Earnings Per Share (EPS), since this is meant to represent how expensive stocks are relative to the money a stockowner gains by “owning them.”

On that note, according to the “official data” the S&P500 is sporting a P/E ratio of 25. This is supposedly “cheap” since it’s below the P/E ratios established in the past.

Unfortunately, this too has been shown to be a load of nonsense. As Lance Roberts has revealed, only 13% of today’s earnings per share results stem from actual “growth.” The rest are based on accounting gimmicks like buybacks, write offs and the like.

Put another way, 87% of earnings growth since the GREAT CRISIS has been the result of accounting gimmicks.

This is a 1 in 100 year type event. The fact that stocks have rallied to new all-time-highs based on this is like someone winning a Olympic Gold medal while hopping themselves up on every steroid imaginable.

The fall-out will be just as intense.

The below chart isn't a pretty one, but it's worth keeping in mind as stocks move ever higher into nosebleed territory based on accounting trickery.

This bubble, like all bubbles, will burst. And when it does, the market will crash, just as it did in 2000 and 2008.

To pick up a FREE investment report outlining three investments that you could make you a ton of money when the bubble bursts… 

CLICK HERE!

Graham Summers
Chief Market Strategist
Phoenix Capital Research

Graham Summers is Chief Market Strategist for Phoenix Capital Research, an independent investment research firm based in the Washington DC-metro area with clients in 56 countries around the world.

Graham’s clients include over 20,000 retail investors as well as strategists at some of the largest financial institutions in the world (Morgan Stanley, Merrill Lynch, Royal Bank of Scotland, UBS, and Raymond James to name a few). His views on business and investing has been featured in RollingStone magazine, The New York Post, CNN Money, Crain’s New York Business, the National Review, Thomson Reuters, the Glenn Beck Show and more.

Goldschläger and Goldwasser are liqueurs containing pure gold flakes.

Gold Eagle twitter                Like Gold Eagle on Facebook